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Treasury, US Major Airlines Achieve US$25b Bailout Agreement

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Treasury, US Major Airlines Achieve US$25b Bailout Agreement

Treasury, US Major Airlines Achieve US$25b Bailout Agreement
April 15
12:59 2020

MIAMI– After the US aviation industry’s proposed bailout package, today ten major airlines agreed with the government to receive US$25b in grants and loans for payroll assistance.

Alaska Airlines (AS), Allegiant Air (G4), American Airlines (AA), Delta Air Lines (DL), Frontier Airlines (F9), Hawaiian Airlines (HA), JetBlue (B6), United Airlines (UA), SkyWest Airlines (OO) and Southwest Airlines (WN) will participate in the aid program as the Treasury Department stated.

According to President Trump and the Treasury secretary, Steven Mnuchin, this agreement will fully support airline industry workers, preserve the vital role airlines play in the US economy and protect taxpayers, as part of the economic stabilization package that Congress already passed.

Agreement details


The government support will come part grants and part loans but with strict conditions, as the Treasury will receive licenses worth 10% of the loans that exceed US$100m to buy equity stock in companies, according to The New York Times.

Just last week, the Treasury Department said that it would not require airlines that receive up to US$100m in bailout cash to give government equity stakes or compensations.

However, a Treasury official said that the agreement was carefully negotiated to include a compromise due to companies seeking grants with no repayment and administration favored loans.

The bailout is divided as such: 70% of grants would benefit taxpayers through payroll, income tax receipts and reductions of unemployment insurance payments while 30% would be repaid as a loan over 10 years, added the functionary.

Assistance will include US$25bn in payroll support while passenger carriers would receive US$25Bn in loans. Cargo companies and aviation contractors will receive at least US$10bn more in grants and loans, the two later further packages are not negotiated yet, according to official statements.

Aid that comes with companies warrants


During the time the agreement was consolidated, the Treasury Department pushed airlines to repay 30% percent of the money over five years, but carriers executives and labor unions claimed that the Trump administration was turning grants into loans.

The move was therefore deemed contradictory to the intention with which the aid program was initially proposed by Congress.

The strict conditions that come with the payroll support also involve a prohibition from major staffing or pay cuts through September, an abstention from buying back shares or paying dividends through September 2021, and a limitation on executive pay until March 2022.

Aid reception and conditions, airline by airline


American Airlines said it would receive US$5.8b, with at least US$4b in grants and US$1.7b in loans while also it plans to apply for a US$4.8b loan from the Treasury Department under the loan provision of the legislation.

American Airlines CEO, Doug Parker, added in the statement that the program would sustain the critical air service.

On its part, DL said it would obtain US$5.4b in grants and US$1.6b in loans as it would give government warrants to acquire 1% of its stock at US$24.39 per share throughout five years.

Delta CEO, Ed Bastian, said in a letter to staff that this was just one of the many essential steps to get the company through the next months.

Expecting US$3.2b, WN said that US$2.6m licenses from a total of US$1bn in loans will be for Treasury to buy stock in the company. Additionally, with less than a US$1b, B6 said it would receive US$936m, US$251m of it as loans.

Thus far, UA and AS have said that they expect to achieve their agreements with the Treasury Department in the next few days in addition to other carriers that have not unveiled their deals yet.

Unions reception


The Association of Flight Attendants (AFA) President, Sara Nelson qualified the agreement as an “unprecedented accomplishment,” but encourages the industry to fight to keep aviation intact as investment bankers like Secretary Mnuchin control the outcomes.

On its part, the Air Line Pilots Association (ALPA) President, Capt. Joe DePete blamed the Treasury Department for “undermining the intent” of the package and for making it harder to stop layoffs, slowing the industry recovery.

The aid package is expected to be an initial step to face the current crisis and kickstart a recovery of the US aviation industry, which suffered a major economic plunge in March due to companies cutting 96% of their flights and 71% of their capacity.

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